The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Hewlett Packard's results are out and they're a little bit worse than everyone expected. Not much, but just a bit: and they are accompanied by an announcement that the company will be laying off a further 11,000 to 16,000 people to add to the 34,000 who have already gone. That moves the redundancies from 10% or so of the workforce to 15% or so. For the full details do see this from my colleague Maggie McGrath. The part of the story that interests me here is, as ever, the economic part of the story. Which is just what can you do to thrive in a declining market?

Hewlett Packard's problem is that it was just excellent at the last technology and as that technology declines it hasn't really found, as yet at least, something at which it excels to replace it. HP in the printing world was always the standard by which everyone else was judged. But we're all just printing less these days so that's a business in secular decline. HP hoovered up Compaq and other PC manufacturers to leave it as the world's number one producer of them. But that's a business in secular decline as well. global PC shipments are falling (this is a problem that shares). There's a business in servers and storage for corporates as well but that's being eaten into by the Cloud and other newer technologies.

So, what is a company in this sort of situation to do? There are essentially two options. The first is to try to innovate out of this problem. To find some new product, some new line of products, perhaps even create a new category of products, and so revitalise the company's prospects. We might call this the strategy. That company was bouncing around with a 4 or 5 % share of the PC market, a declining share, and looking very much like it was nearing the end of its natural life. Then came the various (superb) laptop products and the category changers the iPod, iPhone and iPad. That trio completely transformed the prospects of the company.

However, that new product search is something pretty difficult to pull off. There's an entire venture capital backed industry looking to invent those new products all the time. And the trick is even harder when you're in a 300,000 person strong company. There's a very strong line of discussion that Apple was really only able to achieve it (even as a much smaller company) because of the highly unusual focus on Steve Jobs and his ideas and personality at the company. To do it in the sprawling bureaucracy that is HP would be a very clever trick to pull off indeed.

The other way to do things is less adventurous, it's to rather meekly accept that fate of being a boring and unexciting producer of that last technology. This can still be highly profitable but it's unlikely to be a growth strategy. The profit comes from the fact that there's still vast revenues ($25 billion a quarter and up) flowing through the books. All that's required is to make sure that the cost structure allows a profit to be made from those revenues. However, to follow this strategy does require that everyone agree that growth isn't everything, and that there's no particular reason why a company should either grow forever or even exist forever. Instead, it requires accepting that the point of a company is to enrich the shareholders to the maximum extent possible. And sometimes that maximal enrichment will be best achieved by launching into new business areas and sometimes it will be achieved by careful cost management of a declining business sector.

This is the classic dilemma for a company in Hewlett Packard's situation. There's risk, adventure and the possibility of a return to profitable growth in chasing new markets with new products. And there's more certainty, less excitement and perhaps no growth in simply carefully managing the declining markets where the company already excels. Which policy they pursue is of course up to the management and the shareholders, it's their company. But that is the sketch of the decisions they face.